Outside money would help Classified Ventures compete

Not that a dose of fresh capital wouldn't help the online advertising firm owned jointly by Tribune Co. and four other newspaper chains. Growth is down, and rivals are getting stronger.

“In the type of environment we're in, where things are rapidly changing, it might not hurt to have a third party at the table, like a private-equity firm,” CEO Dan Jauernig says.

Mr. Jauernig, 45, says the Chicago-based operator of Cars.com, Apartments.com and other classified sites has received “expressions of interest” from a number of private-equity firms, but he won't say which.

The company's ambivalence reflects a split among its owners. Some, like Tribune—with the largest stake, at 28%—could use the cash that selling a piece of Classified Ventures would bring. Others, such as Washington Post Co., are more interested in its long-term strategic value.

Caught in the middle is Classified Ventures, which must keep pace with AutoTrader.com, the top car-sales site, and a gaggle of startups.

“Classified Ventures is either going to participate or they're going to find themselves in a more competitive environment each year going forward,” says Bob Bellack, who helped start the company and was CFO until 2004.

ENTER THE COMPETITION

Founded in 1997, Classified Ventures has grown to more than 1,200 employees, with plans to add 80 more this year. The company won't disclose profits but says revenue climbed 7.7% to $334 million last year. That beats the 4.3% rise in 2009 but trails the double-digit growth logged before the recession.

Classified Ventures sells ads through 150 newspapers around the country. Most of the papers get up to a 35% cut, but the five Classified Ventures owners get up to 75%. Cars.com is the company's biggest moneymaker.

“The market for digital car-buying services is growing, and Cars.com has a fantastic position,” says Steve Hills, a Classified Ventures director and president of the Washington Post, whose parent owns a 16.5% stake.

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Still, AutoTrader has grown faster since Rhode Island private-equity firm Providence Equity Partners LLC bought a 25% stake last year. The company, which had 11% sales growth last year, acquired car dealer site VinSolutions.com last month and snagged the Kelley Blue Book site in October.

In the past three months, AutoTrader has drawn nearly twice as many unique visitors as Cars.com, though Cars.com's visitors were more likely to buy, according to Chicago-based ComScore Inc., an online market research firm.

Mr. Jauernig also faces smaller competitors, like CarGurus.com and RepairPal.com, which target niches that Cars.com is just starting to tap.

He acknowledges new capital would help, especially for acquisitions. But the owners' decision to take a first-time special dividend of $95 million last December was a move in the opposite direction.

Selling shares to a co-owner or outside party could make sense to Chicago-based Tribune, which hopes to exit bankruptcy later this year, and to Sacramento, Calif.-based McClatchy Co., which is fending off creditors. Both decline to comment.

McLean, Va.-based Gannett Co., which has a 23.6% stake and is building a portfolio of digital companies, can afford to wait for a higher valuation, says John Rogers, CEO of Chicago-based Ariel Investments LLC, which owns Gannett shares. Gannett declines to comment.